ABSTRACT
Demand is just one blade of the scissors determining price and quantity; the other blade, supply, is systematically considered in the next few lectures. A firm is an intermediary between factor and product markets: it purchases a set of factor inputs and transforms them into useful output that is sold. Traditionally, a firm is assumed to maximize its income, called "profits," defined as the difference between receipts in product markets and outlays in factor markets. If all firms had the same supply curve, the market supply curve would simply be a blown-up version of this curve. The marginal costs of all firms must be equal to each other at every point on the industry supply curve, for each is equal to the same market price. The difference between the revenue and cost of an efficient firm is called "economic rent," and is a reward for the scarcity of superior efficiency that would vanish as it became common.
